Fed's Meyer Calls for Looser Restrictions on Bank Mergers
By SEIBERG, JARET
Federal Reserve Board Governor Laurence H. Meyer urged the government Monday to move more aggressively to remove impediments to bank and cross-industry mergers.
"Unless there are further actions, the remaining regulations likely will continue to restrain consolidation and integration activity significantly," Mr. Meyer said.
While praising the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 for lifting some barriers, Mr. Meyer noted that the law imposes deposit caps that may force some banks to walk away from mergers. The law generally prevents any bank from controlling more than 10% of domestic deposits or 30% of deposits in any state.
"This cap is close to binding on some organizations and may make it difficult to have deposit-taking branching operations in all 50 states," he told the North American Economic and Finance Association.
Existing laws also make it tougher for banks to diversify into new lines of business, he said. For instance, banking companies are generally barred from underwriting insurance, he said.
The House last year passed a financial reform bill that would have allowed banks, securities, and insurance firms to buy each other, but the Senate failed to act. Passage of a bill this year is questionable.
Mr. Meyer said the market-not the government-should decide whether mergers make sense. "We should allow banks to take advantage of perceived opportunities to increase profitability by improving efficiency, and leave it to the market to discipline errors in this regard," he said.
The government should intervene only if an in-market deal significantly reduces competition, he said. "Our basic policy should be-and is-to deny or alter mergers and acquisitions that appear likely to result in substantial increases in local market power," he said.
Regulators also need to revamp how they judge local market competition, he said. Consumers are increasingly using the Internet to bank with out-of- market institutions, or turning to nonbank financial companies for loans and investments, he said. …